“Telco Partnerships Are Becoming More and More Important”

On the development of wholesale in the forthcoming years

An interview with Federico Homberg, Head of Innovation & Commercial Roaming Business Development at Deutsche Telekom Global Carrier

In addition to the consumer and business areas, the wholesale trade will in future also play an important part within large telcos. In addition, there will be more and more telco partnerships, as 5G licensing conditions in particular and new market participants will force them to cooperate. Federico Homberg explains how he sees the future for the telecommunications industry in an interview with Detecon consultant Alexandru Banu.

Detecon: How do you see the overall development of wholesale in the forthcoming years?

Homberg: Wholesale becomes more and more important! Three top reasons behind this statement. First, competing against OTTs on application/service level (e.g. by some telcos buying or even producing own TV content) doesn’t scale for telcos due to relatively small footprints compared to OTTs. Increasing footprint via M&A doesn’t work either due to regulatory & competition law constraints. Second, very costly investments into fiber and 5G rollout need to be refinanced and ROI can be improved by wholesaling access capacity. And third, Regulatory pressure including net neutrality: some 5G licenses come with wholesale obligations; at the same time, it is difficult for telcos to monetize on application and/or QoS level due to net neutrality constraints. Many telcos had a “wholesale follows retail” strategy – but this is changing: Wholesale becomes more and more an integral and important OWN part of telcos next to consumer & business units.

How do you think the future wholesale partnerships will be shaped in the light of important topics such as 5G network rollout?

Overall: Telco partnerships are becoming more and more important and we will see more of them. These are the major reasons:

Regulatory necessity: 5G license conditions in many domestic markets in Europe demand either different forms of local MVNO access to 5G technology and/or strict coverage requirements force MNOs to work together in order to close coverage gaps via some form of network sharing or national roaming.

New market entrants: Partially due to regulation, new 5G market entrants are coming up, e.g. Softbank (Japan), 1&1 (Germany) but also Campus Networks. In Germany for example, parts of the 5G spectrum are reserved for those Campus Networks which would typically be owned by large enterprises. Both scenarios open up many options for wholesale partnerships: Either via some form of network sharing or by a Campus Network where, for example, planning, building and running it could be outsourced to an MNO.

Quality of Service (QoS): 5G (NSA and SA!) comes with built-in QoS: In order to offer own customers (specially IOT customers) international SLAs for their (critical) international IoT applications such as autonomous driving, health applications etc. E2E service quality and E2E SLAs are required. In order to overcome the shortcomings of international mobile data services like latency or round-trip delay, MNOs will more and more work together for local breakout and/or local peering solutions. And those MNOs who will be able to offer SLAs to their IOT customers will have a competitive edge against the others. For international EDGE services, a similar argumentation applies.

What do you think is the playing field for the telcos related to OTT partnerships in this 5G era?

A lot of what makes 5G (NSA) happens under the hood, without customers knowing. What customers will be able to experience are, for example, higher down and upload speeds, or better quality (e.g. HD voice), which can be tailored to the needs of specific use cases by using respective network slices.

For consumers, applications or use cases (and the respective OTTs) will be in the focus that makes use of these additional features such as high-resolution video for watching movies (streaming partnerships), doing video conferences, virtual reality applications, high-resolution online games etc. I also assume, however, that the willingness to pay on the consumer side will be limited. The attractiveness of these features to OTTs will, however, depend on the ability to monetize the superior transport networks. And MNOs will want to have a share of that! OTTs with respective content will want to make sure that their content reaches customers in the best quality –they might even be willing to pay for it, which could be an alternative form of OTT partnership.

On the B2B side, things look differently. There, 5G will be an enabler of completely new business segments around virtual/augmented reality, remote surgery, video surveillance and other IoT applications that are not viable right now due to the sheer amount of data. I also expect to see partnerships in the IoT area, where the use cases are so broad that they cannot be fully covered by MNOs themselves. OTTs with respective products / services / use cases around ultra reliability, enhanced mobile broadband etc. will be in the center of OTT partnerships.

Which are the key drivers from the content market you think may have an impact on the industry in 2020-2021?

Overall - similar to the question above. I also see higher resolution video content (also mobile) from 4K to 8K and streaming partnerships, Content Delivery Networks in the context of EDGE networks, transmission of live events and streaming high-res games for the B2C side, and virtual/augmented experiences (e.g. like buying a car) or booking hotel, flights.

Would you consider any regulatory shift in the forthcoming years? Are there topics that regulators worldwide should tackle to fine-tune telecom industry?

I have already commented on this at the beginning of the interview. European telcos are in competition with the ATTs, China Mobiles and Reliance Jio’s of this world – at least for large IoT deals and when it comes to purchasing equipment. These are huge geographies with hundreds of millions or billions of inhabitants and only 3-4 mobile network operators. This is a scale play! In contrast - if you look at Europe, a relatively small geography with 27 individual countries and 3-4 operators in each country, it doesn’t scale at all. There are too many operators in this relatively small region. Competition law and regulators must allow for M&A in Europe in order for at least some EU operators to remain relevant.

With respect to spectrum, in Europe this is usually auctioned for a limited period of time, for ridiculous amounts of money and with many, many obligations that make it very difficult for operators to recoup the cost of the investments into spectrum, networks etc. At the same time, revenues are being capped by price regulation in many areas. This does not fit together. In the US, for example, spectrum is bought by the companies – something that could be considered in Europe, too.

I hope that regulation does not get too involved in newer areas such as NB-IoT, LTE-M or Campus Networks. These markets – including the Wholesale markets – are fully working and are highly competitive. I think regulators know that and I don’t expect too much interference here.